I liked Mass Effect, but one thing that annoyed me were the over-balanced items you found. You’d find a level 7 upgrade for your weapon that would increase damage by a whooping 2% over the level 6 upgrade. I guess once in a while an enemy would require one less bullet to kill. Big deal.
I think that came from MMORPGs, which need to be very finely tuned to avoid unbalanced gameplay that would affect millions of simultaneous players. That might be fine for multiplayer games, but for single player games you need everything to feel different rather than just be technically different mathematically.
If, in a game, you offered two weapons to players with no mathematical description of their stats, one a huge sword that does awesome fire effects and the other a small sword with no special effects but which deals 10% more damage, I bet the vast majority of players would take the big flaming sword. The small sword may technically be superior, but the big sword feels superior and that’s what matters most when making the choice.
Good feedback is very, very important in making a good game. If all you give players are incremental improvements that aren’t readily perceivable, they won’t feel like they’re getting better stuff even if they are. Putting enough difference between upgrades — both mechanically and in the feel of the upgrade — makes for much better rewards.